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VCTs are high-risk investments because the types of businesses they invest in are very illiquid small, unquoted or AIM-listed companies, which may be difficult for the VCT to eventually sell. Additionally new investments made by VCTs must typically be made into companies that are no more than seven years old from making their first commercial sale (10 years in the case of companies that meet ‘knowledge intensive’ criteria). Investment in younger, earlier-phase companies should be considered as much higher risk than investing in businesses with long track records of trading and well-established sources of revenue.

VCTs are designed as long-term investments. Indeed, if you invest in a VCT new share issue and receive a 30% Income Tax credit on your investment, you must hold on to the VCT shares for at least five years in order to keep the Income Tax credit. Investors who cannot commit to remain invested for at least five years should therefore not invest in a VCT.

Although VCT shares are listed on the London Stock Exchange, there is very little trading on the secondary market and so all VCT shares trade at discounts to their net asset value. In the past these discounts were often very high, though encouragingly most VCTs now have discount control mechanisms in place. These typically target to keep the discounts at no more than 10% to net asset value, though a number of VCTs now target a 5% discount. Our reviews of each VCT share offer comments on the discount policy of each VCT.

When it comes to selling shares in a VCT, it is important to go through a firm offering a stockbroking service. They will speak to the market maker on your behalf and arrange them to be purchased through a buyback. If you trade VCT shares electronically you may end up receiving a price at a large discount to the net asset value.

VCTs should be regarded as higher risk investments.

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Past performance is not an indication of future performance.

VCTs are only suitable for UK resident taxpayers who can tolerate higher risk and have a time horizon of greater than five years. Historical or current yields should not be considered a reliable indicator of future returns, which cannot be guaranteed. Share values and income from them may go down as well as up and you may not get back the amount originally invested. Owing to the nature of their underlying assets, VCTs are highly illiquid. Investors should be aware that they may have difficulty, or be unable to realise their shares at levels close to that that reflect the value of the underlying assets. Tax levels and reliefs may change, and the availability of tax reliefs will depend on individual circumstances. You should only subscribe for new VCT shares on the basis of the relevant prospectus and must carefully consider the risk warnings contained in that prospectus.

We aim to provide investors with information to help them make their own investment decisions although this should not be construed as advice or an investment recommendation. If you are unsure about the suitability of an investment or if you need advice on your specific requirements, we strongly suggest that you consider professional financial advice.


Past performance is not a reliable indicator of future returns

The value of your investment can go down as well as up, and you can get back less than you originally invested.

The Bestinvest Online Investment Service, including any account analysis and investment reports provided by our guidance services, is an online execution-only dealing service for investors who want to make their own investment decisions. It does not provide advice on the suitability of products and investments; if you are unsure about the suitability of any investment you should seek professional advice. Clients of our Investment Advisory Service and Managed Portfolio Service can use the website to obtain current valuations of their investments but cannot trade on these accounts online and should call their adviser if they wish to discuss changes to their investments.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Bestinvest, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.

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© Tilney Bestinvest Group Ltd 2016.

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